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mmO2 mulls solus supplier for 3G networks

Big eggs, big basket

BT Group Plc's mobile spin-off mmO2 Plc last week confirmed that it is reconsidering its relationships with 3G equipment suppliers, and that it may decide to source equipment for all four of its European networks from a single supplier.

mmO2 has so far built pilot networks in the UK with Nortel Networks Corp, in Germany with Nokia Oyj, in the Netherlands with LM Ericsson Telefon AB, and on the Isle of Man with Siemens AG and NEC Corp.

It is now reviewing the contracts it holds with 3G suppliers in the UK, Germany and Holland, and may award a single contract to one supplier covering all of its networks.

Major telcos have traditionally been loathe to award all their network infrastructure business to a single equipment supplier, preferring to foster an element of competition for upgrade, renewal and maintenace business between two or three suppliers. However, for 3G operators like mmO2 that have already had to heavily indebt themselves just to pay for spectrum licenses, no strategy that could reduce the immediate cost of network roll-out is likely to be ignored, and dangling a four-country network contract in front of a supplier must certainly count as a powerful bargaining chip.

The power of bulk buying is thought to have already been a key consideration for Vodafone Group Plc, which earlier this year handed Ericsson a contract to supply the multimedia messaging system (MMS) infrastructure across nine European networks boasting some 65 million subscribers. Although neither company would comment on the value of that deal, analysts have speculated that it represented a significant discount on "book value", and was probably further sweetened by a guarantee from Ericsson that the systems would be supported by sufficient compatible handsets.

Handset supply is also likely to be a key consideration in mmO2's decision process. Without exception, early 3G offerings, including NTT DoCoMo's pace setting FOMA network, have been held back by the scarcity of dual-mode handsets. In mmO2's case, this consideration may tend to favor the prospects of Nokia or Ericsson, the world's first and third largest handset makers, although it might also play into the hands of NEC, which supplied handsets to Manx Telecom Isle of Man network, and which is also a major 3G terminal supplier to DoCoMo in Japan.

At the most recent count, mmO2 boasted 17.2 million subscribers across its European operations, making it the fifth largest wireless operator on the continent.